Dividends are taxed at 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers and 39.35% for additional rate taxpayers in the 2026/27 tax year. The basic and higher rates went up by two percentage points on 6 April 2026. The additional rate did not change, and the £500 dividend allowance stayed the same. For a director who pays themselves mostly in dividends, that is a real increase in the personal tax bill.
This article explains the rates in plain terms, works through one example with round numbers, and covers what you have to report to HMRC (HM Revenue and Customs) and by when.
What a dividend is, and who pays tax on it
A dividend is a payment a limited company makes to the people who own shares in it. Those people are called shareholders. Dividends come out of the company's profits. In a small company, the director is often also the shareholder, so the dividend is how they take money out of the business.
The company does not deduct the tax on a dividend. You pay it personally, through your own tax return. That is the part directors most often miss, because nothing is taken off at the point of payment.
You do not pay tax on dividends from shares held in an ISA. Everything below is about dividends from shares held outside one, which includes shares in your own company.
The 2026/27 dividend tax rates
GOV.UK publishes the rates for 6 April 2026 to 5 April 2027. They apply to dividend income above your allowances:
| Income Tax band | Dividend tax rate for 2026/27 | Rate for 2025/26 |
|---|---|---|
| Basic rate | 10.75% | 8.75% |
| Higher rate | 35.75% | 33.75% |
| Additional rate | 39.35% | 39.35% |
The increase follows measures announced in the 2025 Autumn Budget. For basic and higher rate taxpayers it works out at an extra £20 of tax for every £1,000 of dividends. Someone whose dividends fall wholly in the additional rate band sees no change.
Which band you are in
Your band depends on your total income, not just your dividends. You add your dividends to your salary and any other income, and the total decides the rate.
For 2026/27, with a standard Personal Allowance of £12,570, the bands run roughly like this:
- Basic rate: income from £12,571 to £50,270.
- Higher rate: income from £50,271 to £125,140.
- Additional rate: income over £125,140.
You can be taxed at more than one rate in the same year. If your income crosses £50,270 part-way through your dividends, the dividends below that line are taxed at 10.75% and the rest at 35.75%.
The two allowances that reduce the bill
Two separate allowances come off before any dividend tax is charged.
The Personal Allowance is the amount of income you can earn each year without paying tax. For most people it is £12,570 in 2026/27. GOV.UK confirms you do not pay tax on dividend income that falls within your Personal Allowance. If your salary is lower than £12,570, the unused part can absorb some of your dividends.
The dividend allowance is a further £500 of dividends each year that carries no tax. It sits on top of the Personal Allowance, so the first £500 of dividends above your Personal Allowance is tax-free. It was unchanged from 2025/26.
Two details are worth knowing:
- The dividend allowance is taxed at 0%, but it still counts towards your basic or higher rate band. It uses up part of the band even though it costs you nothing. This matters when your income is close to the £50,270 line.
- The allowance has shrunk a lot. It was £5,000 in 2017/18, £2,000 from 2018/19 to 2022/23, and £500 from April 2023.
The Personal Allowance also shrinks for high earners. You can lose part of it once total income goes over £100,000, and it is fully withdrawn by £125,140. A director who takes large dividends can drift into this range without noticing.
Dividends sit on top of your other income
HMRC treats dividends as the top slice of your income. Your salary and other income are counted first, and dividends are stacked on top. That is why a modest salary does not protect your dividends from the higher rate. The salary fills the lower part of the basic rate band, and the dividends land in whatever space is left above it.
The common set-up for an owner-managed company is a salary equal to the Personal Allowance (£12,570), with the rest of the profit paid out as dividends. The higher dividend rates make that arrangement more expensive in 2026/27 than it was in 2025/26.
A worked example: £12,570 salary and £60,000 of dividends
Take a director who pays themselves a salary of £12,570 and dividends of £60,000, with no other income. Total income is £72,570.
- Salary: £12,570 is covered by the Personal Allowance, so there is no Income Tax on it.
- Basic rate band: with a £12,570 Personal Allowance, the basic rate band holds £37,700 of taxable income (the gap between £12,570 and £50,270). The salary has already used the Personal Allowance, so the first £37,700 of dividends falls in this band.
- The first £500 of that is covered by the dividend allowance and is not taxed.
- The next £37,200 is taxed at 10.75%, which is £3,999.
- The remaining £22,300 is above £50,270, so it is taxed at 35.75%, which is £7,972.25.
The total dividend tax for 2026/27 is £11,971.25.
Under the 2025/26 rates (8.75% and 33.75%) the same dividends would have cost £10,781.25. The extra for this director is £1,190, which is the two-point rise applied to the £59,500 that is taxed.
That is an illustration. A real bill depends on all your income, including any pension, rental or other earnings, so check your own figures before you rely on a number like this.
How dividends compare with salary
This is the question behind most director decisions: pay yourself salary or dividends?
Three points can be stated safely:
- Dividends do not carry National Insurance. Salary does. That is a large part of why directors use dividends.
- Dividends come out of profit after corporation tax. The company pays corporation tax first, and you then pay dividend tax on what you receive. Corporation tax is 19% on profits up to £50,000 and 25% on profits above £250,000.
- The gap between the two routes has narrowed. The rise in dividend rates means the saving from dividends is smaller than it was.
The National Insurance rates and thresholds for 2026/27 vary with the salary you choose and the company's position, so check current figures with HMRC or your accountant before you set a salary. The same applies to the corporation tax that applies to profits between £50,000 and £250,000. If you are a contractor running your own company, our guide to salary and dividends for contractors in 2026/27 goes through the choice in more detail.
What you must report to HMRC
The rule on GOV.UK is simple. If your dividends are over both your unused Personal Allowance and the £500 dividend allowance, you must report them to HMRC. If all your dividends are covered by those two allowances and no tax is due, you generally have nothing to report.
For most directors who pay themselves dividends, this means filing a Self Assessment tax return. That is the yearly return HMRC uses to work out Income Tax on income that is not taxed through payroll. You declare your dividends in the 'Dividends' section of the return.
If you are a director-shareholder receiving significant dividends, a return is almost always required. A small amount of dividend income can sometimes be collected by an adjustment to your PAYE tax code if you are also employed. That does not suit a director whose main income is dividends. Our guide on whether company directors need to file Self Assessment covers who has to file.
Tax can be due even if you have never filed a return before. If that is you, you need to register for Self Assessment first.
Deadlines for the 2026/27 tax year
Dividends you receive between 6 April 2026 and 5 April 2027 fall into the 2026/27 tax year. The dates that follow from that:
| What | When | Who |
|---|---|---|
| Register for Self Assessment, if you are not already registered | 5 October 2027 | Anyone newly liable, such as a first-time director taking dividends |
| File the online return and pay the tax | 31 January 2028 | Anyone with dividends over both allowances |
The return for the previous year, 2025/26, is due by 31 January 2027. That is the one most directors are working on now, and it is the first return covering the 10.75% and 35.75% rates only if dividends were paid after 6 April 2026. For 2025/26 the old rates of 8.75% and 33.75% apply.
There is one way to avoid a lump sum. If you already pay tax through PAYE, you owe less than £3,000 in total, and you file your online return by 30 December, HMRC can collect the tax through your tax code over 12 months. You can tell HMRC on the return if you would rather not pay that way.
How you pay matters because of timing. Faster Payments, CHAPS and debit card payments can reach HMRC the same or next day. Bacs and cheques take three working days. A new Direct Debit takes five working days the first time, and a new Direct Debit is needed for each payment. Payments on account, if you have them, need a separate Direct Debit. Whether you owe payments on account depends on your tax history, so check that with HMRC or your accountant rather than assume.
The practical point is to leave margin before 31 January. Dividends are taxed only when the return is filed and the bill falls due, so the money should already be set aside by then. A director who has spent the dividends in full during the year can be caught short.
Spouses and sharing shares
If your spouse or civil partner is also a shareholder, they get their own Personal Allowance and their own £500 dividend allowance. That can reduce the household's total dividend tax.
There is a condition. Any transfer of shares must be a genuine change in who owns them. HMRC looks closely at arrangements made mainly to save tax. Get advice before you change who holds the shares, and do not treat it as a paperwork exercise.
Timing your dividends
Because the rates step up at £50,270 of income, how you time dividends can change the rate you pay. Dividends paid in one tax year are taxed in that year. Spreading dividends across two tax years can keep more of them in the basic rate band, instead of pushing one year into the higher rate.
Pension contributions are another option. They can lower your taxable income and so move some dividends into a lower band. Whether a particular contribution is right for you depends on your circumstances, so it is a question for your accountant.
Paying dividends from the company
The tax side is only half of it. The company has to pay dividends out of its profits, not out of money it does not have. If you take money from the company that is not salary or a proper dividend, it may end up in a director's loan account, and that carries its own tax charge. Our guide to director's loan accounts and the section 455 charge explains how that works. The paperwork a company should keep for each dividend, and the rules on what counts as a lawful dividend, depend on the company's accounts and its articles. Check them with your accountant before you pay one.
What to do before April
- Work out your total income for the year, including salary, dividends and anything else.
- Check where you sit against £50,270. That is where the rate jumps from 10.75% to 35.75%.
- Set money aside for the tax bill due on 31 January 2028 as you take the dividends.
- Register for Self Assessment if you have not done so, by 5 October 2027.
- Ask for advice before a large dividend, especially if you control the timing.
If you run a contractor limited company, we prepare the accounts and tax filings for contractor limited companies.
Frequently Asked Questions
What is the dividend tax rate for a basic rate taxpayer in 2026/27?
It is 10.75% on dividends above the £500 dividend allowance and above any unused Personal Allowance. It was 8.75% in 2025/26.
How much can I take in dividends before paying tax?
You can take the unused part of your Personal Allowance (up to £12,570 if you have no other income), plus a further £500 under the dividend allowance. Dividends inside an ISA never count.
Do I have to file a Self Assessment return for dividends?
Yes, if your dividends are over both your unused Personal Allowance and the £500 dividend allowance. If you are not yet registered, register by 5 October after the end of the tax year.
Did the additional rate change?
No. It stays at 39.35%. Only the basic and higher rates went up.
Can I split dividends with my spouse to save tax?
Only if your spouse or civil partner genuinely owns shares. They then have their own allowances. A transfer made purely to save tax is something HMRC looks at closely.